Philip Morris’ big bucks still with regular cigarettes

12 December 2016:

Recently, Philip Morris International (PMI) remarked it would like to work with governments towards phasing out regular cigarettes during the launch of its heated tobacco product, iQOS, in the United Kingdom. However, PMI provided no details as to how quickly it will phase out cigarettes, nor did it set a deadline. A look at its current cigarette business will tell you PMI’s big profits is still with the lethal, regular cigarettes.

In reality, PMI’s regular cigarette business is so lucrative that it won’t be giving up this business anytime soon. In 2015, PMI sold 847bn cigarettes and had group revenues of $26.8bn. In the face of this reality, PMI’s iQOS as ‘reduced risk products’ (RRP) is gimmicky and a distraction.

It is duplicitous for PMI to talk about these RRP, when it is increasing sales of its regular cigarettes in its target countries in Asia, especially Indonesia, Philippines and Vietnam.

In Indonesia, the 65 million smokers and the young will help grow PMI’s profits. PMI is celebrating that it is the “undisputed market leader and will continue to have confidence in this market as a key driver of our growth in Asia.” Indonesia represents a significant growth opportunity for PMI, where it anticipates double-digit growth. While fighting tax increases and advertising bans through tobacco farmers and proxy front groups, PMI launched new brand extensions such as Marlboro Filter Black kretek in 25 cities in September.

In the Philippines PMI will be increasing sales of regular cigarettes. While its local subsidiary (PMFTC)’s  sales of cheap cigarette brands, Fortune and Jackpot, were impacted through the tobacco tax increase, the more expensive segment of cigarettes such as Marlboro grew by about 30% due to its narrowed price gap with lower-priced brands, thereby improving PMI’s profits.

In fact, PMI plans to increase sales of its Marlboro brand in the “untapped potential among adult smokers” – ‘adult smokers’ is a euphemism for ‘young non-smokers’ since most smokers start smoking when they are still minors. PMI strategy is to make the Marlboro brand “more approachable and gender inclusive” (get more female smokers) with “upgraded and modernized packaging”. In 2015 alone, 73.5 billion Marlboro sticks were sold in Asia.

Asia’s low and middle income countries are experiencing higher growth of disposable income which will benefit tobacco companies like PMI which finds this, “conducive to sustainable industry volume and margin growth. … Increasing affluence supports up-trading to premium products offering innovation and differentiation in line with adult consumer preferences.” See PMI-Asia report here and here. To counter this, countries in the region must increase tobacco tax which must translate into substantial price increases for cigarettes.

Between 2010 and 2015, PMI’s sales of premium cigarettes in Asia’s low and middle income countries increased by eight billion units. Highest growth was in Indonesia, Vietnam and India. Furthermore PMI is promoting low-tar and slimmer cigarettes. New brand launches of such cigarettes deluding smokers into believing they are smoking less dangerous cigarettes, while teenage girls are targeted with the slimmer sticks.

In the ASEAN region, Vietnam saw increasing cigarette sales and is slated for PMI’s ‘business expansion’. PMI will conduct “distribution expansion and trade channel optimization” to further increase its cigarettes sales, following the success of the mid-pricedChampion launched in October 2015.

How can countries counter the tobacco industry’s burgeoning sales in Asia?

  • Increase tax and price across all type of tobacco products
  • Enforce a ban on tobacco advertising at points of sale, including a ban on pack displays
  • Adopt plain packaging or enlarged pictorial warnings covering over 80% of the pack surfaces

For more information on the tobacco industry, The Tobacco Control Atlas: ASEAN Region, Ch 2: http://seatca.org/dmdocuments/The%20Tobacco%20Control%20Atlas%20ASEAN%20Region%203rd%20Edition%202016.pdf